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Thursday, July 26, 2018

What is a Bitcoin Address? A 3-Minute Rundown

If you want to buy or sell items with Bitcoin, you need to be able to send and receive your funds from a certain location, kind of like sending and receiving mail through a mailbox.

But since we’re talking about sending and receiving Bitcoins -- and not postcards -- the location where you send and receive Bitcoins is actually on the internet and represented by a long series of letters and numbers. It’s called a Bitcoin address.

What is a Bitcoin Address?

A Bitcoin address indicates the source or destination of a Bitcoin payment. Similar to sending an email, if you want to send bitcoins to your friend, you would send your bitcoins from your Bitcoin address to your friend’s Bitcoin address.

Most blockchain experts recommend generating a new Bitcoin address each time you send or receive a payment, though. This personal security measure makes it harder for people to trace where your Bitcoin funds come from and where they go.

How to Get a Bitcoin Address

To get a Bitcoin address, you first need to download a Bitcoin wallet, which is software that allows you to securely send, receive, and store Bitcoin funds in the Bitcoin network.

Bitcoin wallets also store your private key, which is essentially your Bitcoin password. The software will generate a brand new Bitcoin address for you every time you create an invoice or receive a payment request for Bitcoins too.

Mobile Wallets

Mobile wallets are the most convenient wallets to access, but your wallet provider will store your key on its app or your phone, so if someone knows your phone’s passcode and accesses it, they can easily send all your funds to one of their Bitcoin addresses.

Hardware Wallets

Hardware wallets are like external hard drives for your Bitcoins. They’re physical, offline pieces of hardware that you can plug into your computer to buy and sell items with Bitcoin and store in a safe place when you’ve finished conducting business.

Hardware wallets are the most secure way of storing your bitcoins because they limit your funds’ exposure to the internet and potential hackers.

Bitcoin Address Example

Bitcoin addresses are 26-35 characters long, consist of alphabetic and numeric characters, and either begin with “1”, “3”, or “bc1”.

Currently, there are three Bitcoin address formats in use:

1. P2PKH (address starts with the number “1”)

Example:

1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2

2. P2SH (address starts with the number “3”)

Example:

3J98t1WpEZ73CNmQviecrnyiWrnqRhWNLy

3. Bech32 (address starts with “bc1”)

Example:

bc1qar0srrr7xfkvy5l643lydnw9re59gtzzwf5mdq

Bitcoin is new and exciting, but it's also relatively ambiguous, so it polarizes the general public. Its potential as a global currency exhilarates some people but terrifies others.

Bitcoin skeptics doubt the cryptocurrency is secure enough to become a global currency, but Bitcoin wallets, especially hardware wallets, are getting tougher to crack, and the one-time use of Bitcoin addresses make your transactions nearly untraceable.